Two fixtures in the market for fine art and commercial design supplies in Minneapolis are now former rivals with Art Materials’ acquisition of Penco Graphic Supply.

The acquisition unites Art Materials’ ambitious plans for continued growth and its retail expertise with Penco’s commercial sales savvy and the online sales experience of both companies.

“Our goal is to take the best of Penco and the best of Art Materials and to grow in the marketplace, challenge our competition and try to provide something better than both businesses were trying to do,” said Larry Brown, who owns Art Materials with his wife, JoAnn Brown.

Former Penco co-owner Conrad Segal, the well-known face of that business, has joined the Browns to work in sales at Art Materials, in part to win back customers who may have gone elsewhere as Penco’s financial struggles forced it to cut back on inventory.

“This is what I started out in my career as, bringing product and users together,” Segal said. “Now I’m in position to do what I always enjoyed doing. My spirits have soared on a business and a personal level.” Terms of the acquisition, which closed in June, were not disclosed.

The deal has sparked a flurry of construction and other activity for the Browns. They’re overseeing renovations to Art Materials’ headquarters on Lyndale Avenue S. in Minneapolis’ Uptown neighborhood.

They’re also completing improvements to a new Art Materials store on Marshall Street, close to art studios, architecture firms and creative agencies in the Northeast neighborhood. Penco’s former North Loop location at 718 Washington Av. has closed after more than two decades of retail and warehouse presence there.

The goal is to have all the work done before art-supply dealers from around the country arrive for their annual trade show May 1-3 at the Minneapolis Convention Center.

Art Materials, which also has a store in Fargo, N.D., now has 30 employees, Brown said. Art Materials and Penco each had about $2 million in sales last year, with Art Materials’ revenue up more than 20 percent. Overall, sales for both are down from pre-recession high points of $5 million a year.

Art Materials was in a better position to withstand the downturn, in part because it had avoided taking on debt, Brown said. Retail sales stayed fairly steady as some consumers, especially retiring baby boomers, spent money on art supplies as they took up or resumed creative pursuits while staying close to home and avoiding major purchases.

Opening the Fargo store in August 2010 has paid off because it filled a need in a market that stayed strong through the recession.

Penco, meanwhile, had struggled after its 2007 purchase of additional space on the ground floor of the SoHo Lofts building to expand the retail store in its longtime location. Penco depended heavily on commercial sales, which nose-dived as the economy tanked, and retail business in the expanded space failed to live up to expectations, Segal said.

With sales down, inventory short, high overhead and credit unavailable, Segal decided the time had come to seek a buyer.

“We realized we just couldn’t go on anymore,” Segal said. “We ran out of cash. We had not been profitable for quite some time. We were like a ship with its anchor dragging on the bottom and nothing in the tank to drive the motor.”

Larry Brown, who has been distributing art supplies for two decades, said the Penco acquisition suited his growth plans.

“Buying the competition is a lot easier than putting in a new location from scratch and competing for the same customers,” Brown said.

The expert says: Dave Brennan, marketing professor and co-director of the Institute for Retailing Excellence at the University of St. Thomas’ Opus College of Business, said the timing is good for the consolidation of Art Materials and Penco because of the rapidly improving Twin Cities economy and the accelerating rate at which baby boomers are retiring.

“Because they’re merging, it’s like getting rid of a competitor,” said Brennan, who noted that both Art Materials and Penco had received favorable online reviews.

“That allows them to leverage their product knowledge and their knowledge in terms of different kinds of opportunities that are out there.”

Todd Nelson is a freelance writer in Woodbury. His e-mail address is todd_nelson@mac.com

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